It is quite often believed that taking on greater risk with your investments will lead to greater returns. This is somewhat true; however, it is crucial for investors to understand the relationship between risk and return.
Whether you are a seasoned investor, or you are just getting started with investments, risk and return is a conversation we are having with these clients every day. It can prove more beneficial, instead of thinking about taking on more risk to achieve greater returns, to think about your capital preservation and avoiding a loss of capital.
This has been best highlighted more recently with the volatility we have seen across investment markets with the impact of COVID-19.
We have found time and time again that investing funds in stronger, higher-quality companies, which have the ability to weather the bad times and re-position for the good times, is a beneficial long-term investment strategy.
High-quality companies with strong balance sheets and experienced leadership teams are more often than not able to utilise market downturns are opportunities to acquire weaker businesses and take advantage of the discounts being applied across the market.
Although it may be tempting to buy cheaper companies at low prices, investors should remember that investing in higher-quality companies is a more proven strategy to deliver long-term returns utilising compounding over time.
As long as you are patient you will benefit from the growing earnings of these businesses and bear less risk over the longer term.
We like to look to the likes of US investor Warren Buffett who is famously quoted: "It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Disclaimer: The information contained in this report is provided to you by Chalk Capital as general advice only, and is made without consideration of an individual's relevant personal circumstances. Chalk Capital ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Chalk Capital”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Chalk Capital investment adviser before doing so.
